Rent Rate Analysis: Tips for You

Rent setting is a key piece to property management and investing. Understanding how rent should be applied, what your property might be worth, and what is reasonable for your tenant will vary.

A property manager needs to make sure that the rent you charge is both fair and reasonable.

Economics play a part

Be aware of the current economic situation in your area; especially through the housing market. Understand the rise and the falls. It can be very challenging to understand this. So, what do you do next? We’ll tell you.

If the economics in that area is good, then rent should be based on that value. Make sense? Low vacancy rates mean high return on investment. High vacancy means low rates of return. And these can change quickly based on different variables.

Local is better

You enlist local experts. Get information from other investors, or real estate agents in the area. Local experts will have in-depth knowledge about their experience in the market. For example, if there is a large development in that area, is it reasonable to charge a higher rent rate?

Look for local listings. Kijiji, local newspapers and real estate websites can be great resources. They will have their rent previewed for a given area. This will give you a better idea of what other people who own property are charging. Then ask yourself if it is lower or higher than you anticipated.

Some people who own property may undervalue their property to rent quickly, take your time to assess what the value might actually be. This is about making the most money you can.

Space isn’t the only key

It’s also good to assess the square footage of the property. Price per square foot can also be a good assessment of how much you should charge. The market may suggest a given rent; but if you have a large property, great location or even attractive zoning, then it may be wise to charge extra for a space.

Essentially, the larger the property, the more valuable it will be. You can turn a large space into multi-units. Creating multi-unit space allows for better-increased income and increased property value.

Take your cost into consideration

Rent can also be affected by any renovations or loans against the property. It should reflect what you have put into the property. Renovations can be costly, so take the time to assess what kind of return you’d like to see in a year long lease.

So let’s talk about your purchase price. Let’s say that you charge $1,000/mon. That’s $12,000/annually. If you have a vacancy rate in that area at about 10 per cent, subtract $1,200 from that income.

Next, you should add together all your expenses. This can be your utilities, taxes, insurance, homeowners association fees, and repairs from your expected income. You should multiply them by the annual value. Don’t include your mortgage here.
If your expenses for that year is $3,600 — your overall income is $7,200. If you bought the property for $100,000. Divide $7,200/$100,000 — you get a rate of return of 7.2 per cent. Keep in mind — you have not taken into consideration your mortgage. After all of this, it might not be a wise price in this area.

This can really go a long way in preparing you for your rent. But also, before you even begin investing in property.